FEDERAL COURT OF AUSTRALIA
Sobey v Nicol and Davies, in the Matter of Guiseppe Antonio Mercorella [2007] FCAFC 136
Federal Court of Australia Act 1976 (Cth) ss 27, 24(1A)
Federal Court (Corporations) Rules 2000 r 2.2(1)(b)
Federal Court Rules O 52 r 36
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd & Anor (2001) 117 FCR 424 cited
CDJ v VAJ (1998) 197 CLR 172 referred to
Cottrell v Wilcox [2002] FCAFC 53 cited
Coulton v Holcombe (1986) 162 CLR 1 referred to
Freeman v National Australia Bank Limited (2003) 2 ABC (NS) 32; [2003] FCAFC 200 cited
Gao v Official Trustee in Bankruptcy [2003] FCAFC 84 cited
Li Pei Ye v Crown Limited [2004] FCAFC 8 cited
Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211cited
Williams v Grant [2004] FCAFC 178 considered
Wollongong Corporation v Cowan (1955) 93 CLR 435 referred to
SAD 276 OF 2006
BRANSON, LINDGREN AND BESANKO JJ
22 AUGUST 2007
ADELAIDE
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IN THE FEDERAL COURT OF AUSTRALIA |
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SOUTH AUSTRALIA DISTRICT REGISTRY |
SAD 276 OF 2006 |
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ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA |
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BETWEEN: |
ANTHONY JOHN SOBEY Appellant
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AND: |
COLIN MCINTOSH NICOL & SAMUEL CHARLES DAVIES AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF THE PROPERTY OF GUISEPPE ANTONIO MERCORELLA AND THE SCHEME AND AS JOINT AND SEVERAL LIQUIDATORS OF THE SCHEME Respondent
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BRANSON, LINDGREN AND BESANKO JJ |
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DATE OF ORDER: |
22 AUGUST 2007 |
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WHERE MADE: |
ADELAIDE |
THE COURT ORDERS THAT:
1. The application by the appellant to adduce additional evidence be refused.
2. The application for leave to appeal from the interlocutory judgment pronounced on 24 November 2006 refusing to adjourn the hearing listed for that day be dismissed.
3. The appeal be dismissed.
4. The appellant pay the respondent’s costs of the application to adduce additional evidence, the application for leave to appeal and the appeal including all reserved costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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SOUTH AUSTRALIA DISTRICT REGISTRY |
SAD 276 OF 2006 |
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ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA |
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BETWEEN: |
ANTHONY JOHN SOBEY Appellant
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AND: |
COLIN MCINTOSH NICOL & SAMUEL CHARLES DAVIES AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF THE PROPERTY OF GUISEPPE ANTONIO MERCORELLA AND THE SCHEME AND AS JOINT AND SEVERAL LIQUIDATORS OF THE SCHEME Respondent
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JUDGES: |
BRANSON, LINDGREN AND BESANKO JJ |
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DATE: |
22 AUGUST 2007 |
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PLACE: |
ADELAIDE |
REASONS FOR JUDGMENT
THE COURT
INTRODUCTION
1 The substantive dispute between the parties in this matter concerns their respective claims to be entitled to surplus funds from the sale by a registered first mortgagee of a property at 22-32 Jerningham Street, North Adelaide, South Australia. The registered proprietor of the property at the time of the sale was Giuseppe Antonio Mercorella. Anthony John Sobey claims to be entitled to the surplus funds pursuant to an equitable mortgage allegedly securing the repayment of an interest bearing loan of $750,000 advanced to Mr Mercorella. Messrs Nicol and Davies claim to be entitled to the surplus funds as joint and several receivers and managers of the property of Mr Mercorella and of the unregistered managed investment scheme operated by Mr Mercorella (“the Scheme”) and liquidators of the Scheme.
2 By an order dated 4 December 2006, the learned primary judge (Mansfield J) ordered that the surplus funds, which were at that time held in the trust account of a firm of solicitors, be paid to Messrs Nicol and Davies in their official capacities “as the relevant parties entitled to receive such monies”. This order was made following a contested hearing on 24 November 2006 which proceeded after his Honour made an order refusing an application made that day by counsel for Mr Sobey for an order that the hearing be adjourned.
3 On 4 December 2006 the primary judge granted Mr Sobey leave to appeal from the order pronounced that same day. It does not appear that any application was made to the primary judge for leave to appeal from the order made on 24 November 2006 refusing the adjournment application.
4 By order dated 15 December 2006, Lander J dismissed an application made by Mr Sobey for a stay of the order made by Mansfield J on 4 December 2006. The surplus funds previously held in the solicitors’ trust account were thereafter paid to Messrs Nicol and Davies.
BACKGROUND FACTS
5 On 8 August 2005 Mr Nicol was appointed receiver and manager of all of the property (with one exception) of Mr Mercorella and the property of the Scheme as well as liquidator of the Scheme. Subsequently the companies associated with Mr Mercorella were ordered to be wound up and Mr Nicol was appointed liquidator of the companies. On 3 August 2006 Mr Davies assumed the above appointments jointly with Mr Nicol.
6 As at 8 August 2005 Mr Mercorella was the registered proprietor of the Jerningham Street property. His title was subject to a first registered mortgage in favour of Banksia Mortages Ltd (“Banksia”) produced on 30 June 2004 and registered on 15 July 2004.
7 On 19 July 2005 Mr Sobey produced, and subsequently had registered on 22 July 2005, a caveat on the title of the Jerningham Street property. The caveat asserted that Mr Sobey had a beneficial interest:
… as mortgagee of [the property] pursuant to loan agreement dated the 19th day of July 2005 between the caveator and caveatee wherein pursuant to clause 5 of the loan agreement the caveatee expressly mortgaged to the caveator the estate and interest in the land.
8 On 10 August 2005 the Court made orders on the application of Mr Nicol directing the Registrar General not to register any further dealings concerning the Jerningham Street property until further order. On 9 September 2005 Banksia served on Mr Mercorella, who was in default of the first registered mortgage, a notice of demand for payment and observance of the terms of its mortgage. Banksia and Mr Nicol agreed to a variation of the order of 10 August 2005 to permit Banksia to realise its security on the basis that any funds available after payment of the debt secured by the mortgage, and after payment of the expense of preserving and realising the asset, were to be paid into the Minter Ellison Trust Account until further order, and in particular, pending Mr Nicol’s investigation of any competing claim in respect of those surplus funds. On 14 October 2005 the Court gave a direction to the Registrar General that enabled this agreement to be put into effect.
9 The Jerningham Street property was sold by public auction on 16 December 2005. Settlement of the sale was effected on 16 February 2006 and surplus funds totalling $1,352,810 paid into the Minter Ellison Trust Account. Those funds were thereafter invested in an interest bearing account.
10 On 23 August 2006 Messrs Nicol and Davies filed an Interlocutory Process pursuant to r 2.2(1)(b) of the Federal Court (Corporations) Rules 2000 seeking a final order that the full amount of the surplus funds be paid to them. The only competing claim to be entitled to those funds was that made by Mr Sobey.
EVIDENCE BEFORE THE PRIMARY JUDGE
11 The evidence before the primary judge disclosed the following matters.
Request for Evidence in Support of Mr Sobey’s Claim
12 Mr Sobey was advised by a letter dated 12 August 2005 from Mr Nicol’s solicitors of Mr Nicol's appointment as receiver and manager of the property of Mr Mercorella and of the Scheme. The letter referred to Mr Sobey’s claim to be beneficially entitled to an estate and interest as mortgagee of the Jerningham Street property pursuant to loan agreement dated 19 July 2005. The solicitors asked for a copy of the loan agreement together with details of any advances made pursuant to the agreement and the balance currently payable thereunder. Having received no reply, the solicitors wrote to Mr Sobey again on 22 August 2005 inviting him to contact them.
13 By letter dated 8 September 2005, Caldicott & Co, solicitors, wrote to Mr Nicol’s solicitors providing copies of two cheques, apparently signed by Mr Sobey on 16 March 2004 and 20 April 2004 respectively, drawn in favour of Mr Mercorella. The cheques were in the amounts of $350,000 and $400,000. No copy of the loan agreement was provided nor was any advice given of the balance then payable under the agreement.
14 By letter dated 20 September 2005 addressed to Caldicott & Co, Mr Nicol’s solicitors repeated their request for a copy of the loan agreement referred to in the caveat and advice as to the balance currently payable under that agreement.
Documents Provided and Advice re Mr Sobey’s Instructions
15 By letter dated 13 December 2005, Robert Chrzaszcz & Associates, solicitors, wrote to Mr Nicol’s solicitors advising that they acted for Mr Sobey in respect of the sale of the Jerningham Street property. The letter asserted:
Our client has an interest in this property by way of equitable mortgage. This mortgage secures the sum of $750,000 lent by our client to Mr Giuseppe Mercorella. The amount secured by the mortgage is pursuant to two separate loan agreements, dated 16 March 2004 in the sum of $350,000 and $400,000 dated 20 April 2004. Interest on these loans is 32% per annum pursuant to clause 4 of the loan agreements. Our client registered a caveat over the various titles of this property, giving notice of his interest.
We enclose copies of the mortgage and loan agreements referred to above.
… our client has instructed us to make an application for the balance of the funds obtained by the auction of the property, which are to be held in your trust account, to be distributed to our client pursuant to his equitable interest. To this extent we enclose a copy of our clients’ (sic) proposed Application and our client’s supporting affidavit.
16 The copy memorandum of mortgage enclosed with the above letter was not stamped. It included certain alterations by hand that were not initialled. It was not signed by the mortgagee. It was comprised of a first page and a page numbered 3 but did not include a page numbered 2. It referred to “… the terms and conditions expressed herein in memorandum No 7678598 ….” but did not include any such memorandum. The consideration and terms of agreement were expressed as follows:
Consideration
SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS ($750,000.00) (“the principal sum”) advanced to the mortgagor by the mortgagee in the following manner:
(a): $350,000.00 on 16th March 2004
(b): $400,000.00 on 20 April 2004
Terms of repayment:
(a): Interest only repayments of $20,000.00 paid monthly in arrears.
(b): The Mortgagor shall repay the principal sum upon receiving one (1) month’s written notice.
(c): The Mortgagor shall give the Mortgagee one (1) month’s written notice for the repayment of the principal sum.
Commencement Day 16th March, 2004
Interest Days Day of each and every calendar month (sic)
Rate of Interest Thirty two (32) per centum
Manner of calculating interest monthly
Insurance Full insurable value
17 Despite the reference in the letter to loan “agreements”, only one copy loan agreement was enclosed with the letter. The copy agreement was undated except for the year “2005”. It included the following recitals:
RECITALS
A. The Lender has advanced to the Borrower the sum of SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS ($750,000.00) (the loaned amount) in the following manner:
(i): $350,000.00 on the 16th day of March 2004
(ii): $400,000.00 on the 20th day of April 2004.
B. The parties are desirous of setting out the terms and conditions of a Loan Agreement as hereafter appears.
C. The Borrower acknowledges that by virtue of the execution of the agreement he expressly mortgages [(sic) – that which was mortgaged was not identified]
18 The provision for repayment was expressed as follows:
REPAYMENT
The parties hereby agree that the loaned amount shall be repaid in interest only installments (sic) such interest being calculated at a rate of 32% per annum in accordance with the following terms and conditions:
4.1 Repayments shall be paid monthly in arrears;
4.2 Such repayments being in the amount of TWENTY THOUSAND DOLLARS ($20,000.00) (the repayment amount) per month;
4.4 Each party is to provide notice one month’s notice in advance for repayment of the principal of the loaned amount.
The copy agreement was not signed by Mr Sobey.
19 By letter dated 14 December 2005 Mr Nicol’s solicitors responded to the above letter in terms that included the following observations:
3. Your correspondence is the first time our client has been provided with a copy of the mortgage and loan agreement. It is noteworthy that a request for this information was made as early as 12 August 2005 by this office on behalf of our client and followed up subsequently but not produced. Nor were these documents produced in response to the Summons for Examination served on your client. In fact, no documents were produced by your client in response to the Summons for Examination at his attendance at court on 24 November 2004. We note that you were acting for Mr Sobey at that time and request your explanation in this regard.
4. You have not provided evidence of the amounts allegedly lent to Mr Mercorella as referred to in your letter. For some time our client has been requesting evidence of amounts advanced to Mr Mercorella and details of the balance currently payable.
5. Your client has been ordered to attend for oral examination on 22 December 2005 at which time he is in a position to give evidence material to your client’s allegedly secured interest in the property. Our client will require time to consider that evidence and all relevant documentation before taking a position on the claim.
20 Robert Chrzaszcz & Associates responded the following day advising that all documents previously held by Mr Sobey had been given by him to his solicitors and accountants prior to the service of the summons on him and that they had only recently been provided with copies of the mortgage and loan agreements by Caldicott & Co. This letter concluded:
We are instructed by our client to file and serve the Application and again, in order to avoid unnecessary legal costs, we ask that you examine these documents already produced to you, by us and other parties, and consent to the Application.
21 By letter dated 19 December 2005, Mr Nicol’s solicitors wrote to Robert Chrzaszcz & Associates advising of the sale of the Jerningham Street property and stating:
You have again requested that our client consent to a foreshadowed application for payment of the surplus proceeds to your client. However, you have ignored our client’s request for documentation substantiating the amounts allegedly lent to Mr Mercorella and secured by the mortgage. At the very least, our client requires, as would the Court, a full accounting of all monies advanced, interest accrued and amounts repaid.
Public Examination of Mr Sobey
22 On 22 December 2005 Mr Sobey was publicly examined before a Registrar of the Court in matter SAD 160 of 2005 which concerns the financial affairs of Mr Mercorella and the liquidation of various companies. In response to questions by Mr Hoffmann QC, he gave evidence that he lent $750,000 to Mr Mercorella in 2004 and that the loan was documented at the time of the loans, namely in March and April 2004. He said that he signed a loan agreement and a sales agreement, the intent being that, if Mr Mercorella failed to repay the money or did not meet his interest obligations, Mr Sobey could take possession of the Jerningham Street property. Mr Hoffmann handed to Mr Sobey, and invited him to read, a copy of the loan agreement provided to Mr Nicol's solicitors by Robert Chrzaszcz & Associates under cover of the letter of 13 December 2005. The transcript of the examination then records the following excerpts:
You have seen this document before?---No, I don’t believe so.
I see. Is that the loan agreement that you were describing earlier in your evidence?---I am sorry?
Is this the loan agreement that you were talking about previously in relation to the $750,000 you lent Mr Mercorella?---I think there was another loan agreement that was signed and witnessed by – to my recollection, Nicholas Formichella, myself and there is another witness and I believe that is in the possession of Mr Mansueto.
23 When asked whether he had instructed Robert Chrzaszcz & Associates to send the letter dated 13 December 2005, Mr Sobey agreed that he had. However he stated:
I don’t believe that this is the correct loan agreement – the only loan agreement, or the correct loan agreement. A further one, I believe.
24 Shortly thereafter Mr Hoffmann put to Mr Sobey:
So your evidence this afternoon is that this particular loan agreement is not the loan agreement relating to the loans about which you are speaking?
25 Mr Sobey replied “[t]his particular loan agreement is not one that I signed”. He went on to say that he had signed a loan agreement in respect of the loan of $750,000 in a cafe in North Adelaide and that Nick Formichella witnessed his signature. He further said that a sale agreement was signed and witnessed on the same occasion.
26 Later in the course of the same examination, Mr Hoffmann handed to Mr Sobey the memorandum of mortgage provided to Mr Nicol’s solicitors under cover of the letter dated 13 December 2005. When asked if he had seen the document before Mr Sobey indicated that he had seen it for the first time “[a]bout 30 seconds ago”. He indicated that he did not have a current recollection as to the document that he had signed in connection with his dealings with Mr Mercorella.
Further Requests for Documents
27 By letter dated 9 January 2006 addressed to Robert Chrzaszcz & Associates Mr Nicol’s solicitors referred to Mr Sobey’s examination before the Federal Court on 22 December 2005 and noted that a number of documents to which he referred had not been produced pursuant to summons addressed to him and his former and current advisers. The letter requested Mr Sobey to produce documents to the Court including:
2. All bank statements relating to all accounts in the name of Mr Sobey and/or AS Investments (SA) Pty Ltd from 1 January 2003 to the present, whether held with the Commonwealth Bank of Australia or other financial institution/intermediaries, including any such statements in the possession of Basso Newman & Co.
3. Loan documentation setting out the terms of the advance by Mr Sobey to Mercorella of $350,000 and $400,000 in March 2004 and April 2004 respectively, together with the alleged sales agreement between the same parties as deposed to by Mr Sobey.
4. All banking records setting out the receipt of payments by Mr Sobey or entities associated with him of $20,000 per month each or any other amount, whether by principal or interest, made in respect of the $350,000 and $400,000 advances referred to above.
28 Robert Chrzaszcz & Associates responded to the above letter on 29 January 2006 advising that their client did not have the above documents in his possession and enclosing copies of letters sent by them to two other firms of solicitors and a firm of accountants requesting production to the Court of any of the documents held by them.
29 By letter dated 28 February 2006 Mr Nicol’s solicitors drew to the attention of Robert Chrzaszcz & Associates that:
(a) Mr Sobey had not produced bank statements evidencing the drawing of the two cheques on his account nor evidence that Mr Mercorella received the funds;
(b) while they had asserted that the loans were secured by a memorandum of mortgage pursuant to two separate loan agreements dated 16 March 2004 and 20 April 2004 their letter dated 13 December 2005 enclosed a single loan agreement undated except for 2005;
(c) Mr Sobey had given evidence under examination that he had not previously seen that loan agreement and that the loans were documented at the time of the advances;
(d) Mr Sobey had also given evidence during his examination that, prior to the examination, he had not the memorandum of mortgage that had been enclosed with the letter of 13 December 2005; and
(e) Mr Sobey had still not particularised the amount which he claimed to be outstanding pursuant to any loan agreement.
Further Advice re Mr Sobey’s Instructions
30 By letter dated 7 August 2006 Mr Nicol’s solicitors advised Robert Chrzaszcz & Associates that as Mr Sobey maintained his claims to the surplus funds resulting from the sale of the Jerningham Street property they would draft an application to the Court seeking orders dealing with the proceeds of sale on the basis that Mr Sobey did not have a valid security over the property. The reply dated 11 August 2006 asserted that Robert Chrzaszcz & Associates were instructed that –
… if the application foreshadowed in your letter is brought, our client would make its own application to seek orders for the said proceeds to be paid to him in satisfaction of his secured debt.
The proceeding below
31 As mentioned above, on 23 August 2006 Messrs Nicol and Davies applied to the Court for an order that the surplus funds be paid to them. A directions hearing was conducted by the primary judge on 4 September 2006. Mr Sobey was represented at that hearing and indicated that he proposed to oppose the order sought by Messrs Nicol and Davies. He was directed to file and serve an interlocutory application and any supporting affidavit by 25 September 2006. Mr Sobey did not comply with this direction. On 12 October 2006 his Honour extended the time within which Mr Sobey was required to file and serve an application and supporting affidavits until 3 November 2006 and fixed 24 November 2006 as the date of the hearing. His Honour further directed that medical evidence be provided in support of the assertion that Mr Sobey’s health had prevented his complying with the earlier direction.
32 Ricky Jose Lee, a director of Robert Chrzaszcz & Associates, swore an affidavit dated 3 November 2006 in which he stated that Mr Sobey underwent hip replacement surgery in early August 2006 and was thereafter heavily medicated to alleviate extreme pain. Mr Lee further stated that Mr Sobey had found it difficult to provide accurate and detailed instructions to his solicitors. Additionally he said that in about early September Mr Sobey had experienced complications in his recovery from surgery requiring readmission to hospital. Mr Lee asserted:
Given the nature of [Mr Sobey’s] condition we cannot prepare the required documentation for this action without obtaining proper instructions from [Mr Sobey].
33 A report from an orthopaedic surgeon annexed to Mr Lee’s affidavit confirmed that Mr Sobey had “a resurfacing hip replacement” done on 10 August 2006 and that his recovery had been slowed by the diagnosis of a pulmonary embolus in the post-operative period. The report stated that Mr Sobey was still on pain relieving medication as well as Warfarinto thin his blood. It expressed the opinions that “[i]t would be reasonable to presume that the pain relieving medication will have some ongoing influence on his concentration span” and that Mr Sobey would be “well on the road to recovery by the end of November”.
34 The application made by Messrs Nicol and Davies by the interlocutory application filed on 23 August 2006 was called for hearing on 24 November 2006. Mr Lazarevich of counsel appeared for Mr Sobey on the instruction of Robert Chrzaszcz & Associates. Mr Hoffmann appeared for Messrs Nicol and Davies. Mr Lazarevich applied for the hearing to be adjourned. He read an affidavit sworn by Mr Lee dated 21 November 2006 which exhibited a report dated 20 November 2006 signed by Dr Graham Wright, an occupational physician. Dr Wright reported that Mr Sobey did not have a good memory for details of recent events but that there was no significant abnormality in his speech or conversation and there was no evidence of thought disorder. Dr Wright’s diagnosis was that Mr Sobey had a “Adjustment Disorder with Anxiety, acute” and he stated that Mr Sobey had:
… significant anxiety symptoms, with excessive worry, restlessness, fatigue, his mind going blank, muscle tension and sleep disturbance. His anxiety is sufficient to cause significant distress, and impairment of his cognitive functioning.
35 Dr Wright expressed the opinion that Mr Sobey’s anxiety was sufficient to have an effect on his ability to provide his solicitors with instructions and that he was “not medically fit to provide detailed instructions”.
36 Mr Hoffmann did not oppose the receipt into evidence of Mr Lee’s affidavit and the annexed report of Dr Wright but drew to his Honour’s attention that his instructing solicitors had requested that Dr Wright be made available for cross-examination and that his file be produced. Neither of these requests had been satisfied.
37 The primary judge refused the adjournment application. His Honour’s reasons for doing so are set out in reasons for judgment published on 4 December 2006. His Honour noted that Mr Sobey’s solicitors had asserted as early as 13 December 2005 that they had Mr Sobey’s instructions to bring proceedings to assert and establish his entitlement to participate in the surplus funds from the sale of the Jerningham Street property. His Honour also placed weight on the extensive correspondence exchanged between the respective solicitors for Mr Sobey and Mr Nicol (and later Messrs Nicol and Davies) and considered that there was no reason to think that Mr Sobey had not provided all necessary instructions to his solicitors by at least 10 August 2006, the date of his hip operation. His Honour additionally noted that the claim advanced by Mr Sobey was such that it was capable of being established by documentary evidence and that the solicitors for Mr Nicol had on a number of occasions identified the necessary evidence. Yet neither Mr Sobey nor anyone on his behalf had explained why that documentary evidence had not, or could not, have been presented.
38 Additionally, after reviewing the medical evidence before him, his Honour found that, even if Mr Sobey had not completed his instructions prior to his operation, Dr Wright’s report was insufficiently precise to indicate that Mr Sobey was unable, himself or through others, to identify and produce the documentary evidence necessary to enable his claim to the surplus funds.
39 After refusing the adjournment application, his Honour moved immediately to hear the application made by Messrs Nicol and Davies. Mr Lazarevich remained in Court and participated in the hearing. The transcript of the hearing suggests that Mr Lazarevich himself was initially unaware that the matter was listed for final hearing but that his instructing solicitor was well aware that the matter was listed for final hearing.
REASONS FOR JUDGMENT OF THE PRIMARY JUDGE
40 The primary judge noted that the claim of Messrs Nicol and Davies was quite straightforward given their status as receivers and managers of the property of Mr Mercorella. He further noted that the only competing claim was that advanced by Mr Sobey.
41 His Honour observed that, although the copy cheques drawn in the amounts of $350,000 and $400,000 were in evidence, it was unclear that the cheques had ever been presented. He further observed that, although the caveat lodged by Mr Sobey claimed an interest as mortgagee pursuant to a loan agreement dated 19 July 2005, no loan agreement bearing that date was in evidence. Although a memorandum of mortgage dated 19 July 2005 was in evidence, it was not signed by Mr Sobey and he had given evidence while under examination that he had not previously seen the document. Although Mr Sobey’s evidence during his examination was that the loan of $750,000 was documented at the time of the loans (that is, in 2004) no such documents had been adduced in evidence.
42 His Honour was satisfied that, even if it be assumed in Mr Sobey’s favour that he advanced the money to Mr Mercorella in March and April 2004 as he claimed, the evidence did not establish that Mr Sobey had any interest in the Jerningham Street property at any material time. The order sought by Messrs Nicol and Davies was made.
INTERLOCUTORY APPELLATE HEARINGS
43 The appeal from the judgment pronounced by Mansfield J on 4 December 2006 was originally listed for hearing on Monday, 14 May 2007. On the Court’s own initiative the appeal was listed for directions before Besanko J on Thursday, 10 May 2007. Mr Hayes QC with Mr Lazarevich appeared for Mr Sobey and Mr Hoffmann appeared for Messrs Nicol and Davies. Among the issues raised with the parties on the directions hearing were:
(a) that, although Mr Sobey’s written submissions challenged his Honour’s refusal to adjourn the hearing below, it did not appear that leave to appeal from the order refusing an adjournment had been granted and, if leave were to be sought, an extension of time would be required (O 52 r 10); and
(b) Mr Sobey appeared to place reliance on evidence additional to the evidence before the primary judge but he had neither complied with the requirements of O 52 r 36 nor filed an affidavit explaining his failure to do so.
We interpolate that although the discussion on 10 May 2007 was at a general level, questions raised by the first of these procedural issues are: (a) whether there is a material distinction between a party who wishes to challenge directly an order refusing an adjournment and a party who wishes only to challenge the final judgment - but on the ground that the party was denied natural justice at trial by reason of the refusal to allow the adjournment, and (b) whether the former is required by s 24(1A) of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”) to obtain leave to appeal.
44 Mr Hayes indicated that the procedural issues raised at the directions hearing would be attended to quickly and that Mr Sobey’s legal representatives would look to file and serve the necessary papers that day. As is now well-known, Mr Hayes became seriously ill, apparently during the early morning of Friday 11 May 2007, and some days later sadly died.
45 When the appeal was called for hearing on 14 May 2007 Mr Lazarevich appeared for Mr Sobey and Mr Hoffmann with Mr Mansueto appeared for Messrs Nicol and Davies. Mr Lazarevich formally advised the Court that Mr Hayes’ ill-health would prevent him from continuing in the matter. He sought a short adjournment to allow another senior counsel to be briefed. Mr Hoffmann did not oppose the adjournment application. The appeal was stood over to 6 July 2007.
46 On 14 May 2007 the Full Court made a number of procedural orders and again drew the parties attention to O 52 r 36 of the Federal Court Rules which relevantly provides:
(1) This rule applies to any application to the Court to receive evidence in a proceeding on an appeal additional to evidence in the court below.
(2) This rule applies unless the Court otherwise directs.
(3) The application shall be made by motion on the hearing of the appeal without filing or serving notice of the motion.
(4) The grounds of the application shall be stated in an affidavit.
(5) Any evidence necessary to establish the grounds of the application, and the evidence which the applicant wants the Court to receive shall be given by affidavit.
(6) The applicant shall file any affidavit not later than 21 days before the hearing of the appeal.
(7) The evidence of any other party to the appeal shall unless the Court or a Judge otherwise orders be given by affidavit filed not later than 14 days before the hearing of the appeal.
47 Subsequently, by an order dated 15 June 2007, Besanko J granted Mr Sobey an extension of time within which to file a notice of motion seeking leave to appeal from the order refusing the application for an adjournment of the hearing on 24 November 2006. Having regard to the above circumstances, it is not necessary for the Full Court to consider the extent to which, if at all, an appellant requires leave to appeal from an interlocutory judgment which is sought to be challenged after the publication of final judgment.
THE APPEAL HEARING
48 When the appeal was called for hearing on 6 July 2007, Mr Morcombe QC with Mr Ower appeared for Mr Sobey. Mr Hoffmann with Ms Flaherty appeared for Messrs Nicol and Davies. Mr Morcombe immediately acknowledged that Mr Sobey had not complied with the Federal Court Rules in a number of areas. He explained that he had not received a brief in the matter until Friday, 15 June 2007; that is approximately 4 weeks after the hearing on 14 May 2007. No evidence was adduced in explanation for the delay in retaining a senior counsel to replace Mr Hayes. However, Mr Morcombe advised the Court that he was instructed that Mr Sobey’s solicitor had made earlier unsuccessful efforts to retain a senior counsel on behalf of his client.
Application to Adduce Additional Evidence
49 Mr Morcombe then applied to read, both on his client’s application for leave to appeal from the order refusing an adjournment and on the appeal, nine affidavits containing evidence additional to the evidence before the primary judge. The application was subsequently extended to include a tenth affidavit. All but one of these affidavits was filed later than twenty-one days before the rescheduled hearing. The grounds of the application were not clearly stated in any affidavit (O 52 r 36(4)). However, in an affidavit dated 24 April 2007 sworn by Mr Sobey he attributed responsibility for the failure to adduce the evidence before the primary judge to his then solicitors, Robert Chrzaszcz & Associates. Robert Chrzaszcz & Associates no longer act for Mr Sobey.
50 Mr Hoffmann objected to the additional affidavit evidence being received but not on the ground of Mr Sobey’s failure to comply with the requirements of O 52 r 36. He relied particularly on the controversial nature of the evidence and referred to the observations of Lander J, with which North and Dowsett JJ agreed, in Williams v Grant [2004] FCAFC 178 at [45]-[47]. His Honour there said:
The appellant sought to tender the affidavits in an attempt to address a comment made by the primary judge during argument. ….
No explanation has been offered for the failure of the appellant to adduce the evidence before the primary judge. If the affidavits were to be admitted the first respondent would be entitled to cross-examine the deponents and tender any available evidence in response. Indeed, the first respondent’s counsel said that his instructions were that ‘the affidavits do not reflect what they [sic] consider to be the truth’. The admission of the affidavits would inevitably mean that the application under s 84C would have to be considered afresh. It would be inappropriate for this Court to embark upon a hearing of the matter afresh given that the only appeal from this Court is by special leave to the High Court.
In those circumstances, if the affidavits were admitted, the matter would have to be remitted to a single judge. That would, effectively, mean that the appeal would be allowed without the merits of the appeal being considered. The appellant would have obtained a favourable result by his own failure to adduce available evidence before the primary judge. That would be unfair to the first respondent. In my opinion, the affidavits should not be received.
The Additional Evidence
51 The additional evidence that was sought to be adduced on Mr Sobey’s behalf may be summarised in the following way.
52 In an affidavit dated 19 April 2007 Justin Hill deposed to being at a meeting in a North Adelaide cafe at which Messrs Sobey and Mercorella and Nick Formichella were also present. He states that at this meeting discussions took place between Mr Sobey and Mr Mercorella about Mr Sobey lending Mr Mercorella $750,000 to be secured on the Jerningham Street property. Mr Hill also refers to a later meeting at the same café when the same individuals were present. He states that on this occasion he witnessed some of the signatures on documents which included a contract of sale of the Jerningham Street property, a transfer and a loan agreement. The affidavit includes a statement that Mr Hill had not been asked by Robert Chrzaszcz & Associates to provide a statement or swear an affidavit.
53 In an affidavit dated 24 April 2007 Shona McDermott, a solicitor employed by Caldicott & Co, deposed to drafting a loan agreement, a caveat and a mortgage. Copies of the documents are annexed to her affidavit. Ms McDermott states that she was not asked by Robert Chrzaszcz & Associates to provide a statement or swear an affidavit. The copy memorandum of mortgage and loan agreement appear to be the documents that were provided to Mr Nicol’s solicitors by Robert Chrzaszcz & Associates under cover of their letter dated 13 December 2005. In an affidavit dated 22 June 2007 Ms McDermott gives more detailed evidence concerning the preparation of the above documents and her later conduct with respect to them. In particular she states that on 19 July 2005 she spoke with Mr Sobey several times and explained to him that the loan agreement and memorandum of mortgage needed to be executed by him immediately. She further states that she gave the documents to Mr Sobey on that day and that they were returned to her “on or before 26 August 2006”.
54 In an affidavit dated 24 April 2007 Casey Isaacs, also a solicitor in the employ of Caldicott & Co, deposed to witnessing Mr Mercorella’s signature on the memorandum of mortgage and loan agreement drafted by Ms McDermott. He also states that he was not asked by Robert Chrzaszcz & Associates to provide a statement or swear an affidavit. Annexed to Mr Isaacs’ affidavit is a copy loan agreement dated 19 July 2005 apparently signed by both Mr Mercorella and Mr Sobey. The agreement is in the same form as the copy agreement that was undated except for 2005 provided to the solicitors for Mr Nicols by Robert Chrzaszcz & Associates under cover of their letter dated 13 December 2005. Also annexed to Mr Isaacs’ affidavit is a copy memorandum of mortgage dated 19 July 2005 which bears a revenue stamp dated 26 August 2005. The memorandum is in substantially the same form as the memorandum of mortgage provided to Mr Nicol’s solicitors under cover of the letter of 13 December 2005. However, the memorandum of mortgage is apparently signed by both Mr Mercorella and Mr Sobey. Mr Sobey’s signature appears to have been witnessed by Mrs Sobey. Alterations by hand that were not initialled on the copy of the document provided to Mr Nicol’s solicitors now show a single initial in a hand that appears to be that of Mr Isaacs. The word “herein” is deleted from the phrase “the terms and conditions expressed herein in Memorandum No 7678598” and the deletion initialled by Mr Isaacs. The document, like that earlier provided to Mr Nicol’s solicitors, does not have a page 2 (see [16] above).
55 Mr Sobey annexed bank statements to an affidavit sworn by him on 24 April 2007. These statements apparently show that the two cheques for a total amount of $750,000 drawn in favour of Mr Mercorella were presented and honoured. Mr Sobey deposed to a belief that the bank statements were in the possession of Robert Chrzaszcz & Associates at the time of the hearing before the primary judge. We interpolate that the truth of Mr Sobey’s belief in this regard is not challenged. However, the truth of Mr Sobey’s further assertion that he gave the loan agreements referred to in the affidavit of Mr Hill (or at least “the original loan agreement referred to therein”) to Robert Chrzaszcz & Associates who subsequently acknowledged that the firm had lost them (he says “it”) is challenged.
56 In his affidavit Mr Sobey also deposed to a loan agreement, a contract of sale of the Jerningham Street property and a transfer of the Jerningham Street property having been executed in about April 2004 in a North Adelaide café in the presence of Mr Hill. His affidavit includes the following paragraph:
14. In July 2005 Mercorella told me that he was in the process of attempting to borrow against the Jerningham Street property. I engaged Caldicott & Co to act for me. I found out, through a certificate of title search on the Jerningham Street property that no caveat had been lodged to secure the original advances. This was despite Formichella saying that he would attend to that. I can’t remember if I saw the searches at Caldicott & Co or elsewhere. I instructed Caldicott & Co to prepare and lodge a caveat, and any other documents they deemed necessary. Caldicott & Co prepared a new loan agreement, a mortgage, and the caveat. Copies of these documents are annexed to Mr Davies’ affidavit of 22 August 2006 and to Casey Isaacs affidavit of 24 April.
57 Mr Sobey’s affidavit seeks to explain, albeit in terms that are far from clear, his examination evidence concerning the 2005 documents. Mr Sobey also expresses his dissatisfaction with the conduct of Robert Chrzaszcz & Associates and confirms that he instructed that firm in late 2005 to file an application in respect of the surplus funds from the sale of the Jerningham Street property.
58 Mr Sobey annexed to a later affidavit, dated 2 July 2007, two tax invoices from Robert Chrzaszcz & Associates detailing professional services rendered by that firm.
59 Mr Sobey’s present solicitor, Michael Richard Brereton, the principal of Michael Brereton & Co, swore an affidavit dated 24 April 2007 to which a series of documents is annexed. The only one of these documents to which our attention was drawn is a report concerning Mr Sobey prepared by a consultant forensic psychologist who examined Mr Sobey on a number of occasions in 2007. It expresses an opinion as to Mr Sobey’s capacity to “acquit himself as a Witness Under Oath in relation to a number of pending Court matters”…
60 By a later affidavit, dated 4 July 2007, Mr Brereton deposed to receiving the files of Robert Chrzaszcz & Associates in respect of which his client has waived privilege. He noted that the files contained relevant bank statements of Mr Sobey but very little by way of instructions from Mr Sobey.
61 Mr Lazarevich has sworn an affidavit dated 24 April 2007 concerning the circumstances of the hearing before the primary judge on 24 November 2006 and explaining his own conduct at the hearing.
62 The tenth affidavit was a further affidavit from Mr Isaacs sworn on 8 July 2007. In this affidavit Mr Isaacs gives more detailed evidence concerning the execution of the memorandum of mortgage by Mr Mercorella.
Foreshadowed Answering Evidence
63 Mr Hoffmann indicated that if the additional evidence that Mr Sobey sought to adduce was received, Messrs Nicol and Davies would seek to adduce evidence in response. The documentary evidence identified by Mr Hoffmann was received on Mr Sobey’s application for leave to adduce further evidence.
64 That evidence included a transcript of the public examination of Mr Formichella in SAD 160 of 2005 in which he disowned any knowledge of the loan of $750,000 by Mr Sobey to Mr Mercorella (cf [52] above). It also included:
(a) evidence that following the service on Mr Caldicott, the principal of Caldicott & Co, of orders in SAD 160 of 2005 for his examination and for him to produce documents, he produced six lever arch folders of documents but not the copy memorandum of mortgage and loan agreement annexed to Ms McDermott’s affidavit (see [53] above); and
(b) a transcript of Mr Caldicott’s examination in SAD 160 of 2005 in which he asserted that he did not know of any documentation concerning the loan of $750,000 and that he understood that a mortgage document was prepared to give effect to a verbal agreement.
65 Additionally Mr Hoffmann drew attention to the fact that despite requests for him to do so, the evidence disclosed that Mr Sobey has not provided to Messrs Nicol and Davies an accounting of the principal advanced, interest accrued, amounts paid to him and the total debt alleged to be outstanding in respect of the $750,000 loan. In this regard he read an affidavit sworn by Mr Davies on 9 May 2007 in which he deposes to having undertaken reconciliations of known bank accounts of Mr Mercorella and his companies that demonstrate that since 20 April 2004:
(a) Mr Sobey received from Mr Mercorella payments of $40,000 on each of 20 July 2004, 20 August 2004 and 20 October 2004;
(b) Mr Sobey received from Mr Mercorella payments of $20,000 on each of 20 May 2004 and 17 November 2004;
(c) Mr Sobey received from a related entity of Mr Mercorella the sum of $20,000 on 5 June 2005;
(d) Mr Sobey and his related entities have paid Mr Mercorella $965,000 and received from Mr Mercorella funds totalling $7,979,611; and
(e) Mr Sobey and his related entities have paid related entities of Mr Mercorella $230,000 and received from related entities of Mr Mercorella funds totalling $806,900.
66 Mr Hoffmann also tendered a statement of claim filed in the District Court of South Australia on 19 June 2007 in a proceeding between Mr Sobey and Mr Mercorella. The statement of claim pleads the loan of $750,000 but, inconsistently with the evidence of Mr Sobey in this proceeding, alleges that Mr Mercorella did not make any interest payments in respect of the loan.
67 Finally, Mr Hoffmann read affidavits sworn by Mr Chrzaszcz and Mr Lee in which they challenge Mr Sobey’s evidence concerning the conduct of Robert Chrzaszcz & Associates.
Should the Additional Evidence be Received?
68 Section 27 of the Federal Court Act authorises the Court in an appeal to receive further evidence by affidavit. The circumstances in which the Court should exercise its discretion under s 27 to receive further evidence have been considered by the High Court in CDJ v VAJ (1998) 197 CLR 172 (in the context of the similarly worded s 93A(2) of the Family Law Act 1975 (Cth)) and by the Full Court of this Court in Cottrell v Wilcox [2002] FCAFC 53 at [20]-[24]; Gao v Official Trustee in Bankruptcy [2003] FCAFC 84 at [23]; Freeman v National Australia Bank Limited (2003) 2 ABC (NS) 32 at 48-50; [2003] FCAFC 200 at [68]-[74] and Li Pei Ye v Crown Limited [2004] FCAFC 8 at [157]-[161] as well as in Williams v Grant (see [50] above).
69 The above authorities reveal that the circumstances in which further evidence may be received in this Court on appeal are not limited by the principles laid down in authorities such as Wollongong Corporation v Cowan (1955) 93 CLR 435 which concern common law procedures. The proper limits of the discretion vested in the Court by s 27 are to be determined as a matter of statutory construction. As the Federal Court Act is silent as to the factors which govern its exercise, the discretion is confined only by the subject matter with which the Act is concerned. It should not be understood to be subject to implications or limitations not found in the words used by the legislature. It is a discretion to be exercised in the context of an appeal by way of rehearing. On appeal this Court is required to determine the rights of the parties upon the facts and in accordance with the law as it exists at the time of hearing the appeal.
70 A critical factor will be the subject matter of the proceeding with which the appeal is concerned. As the High Court observed in CDJ v VAJ the Court will more readily admit further evidence where the rights of third parties, such as children are at stake.
71 The discretion to receive further evidence must be exercised judicially, consistently with proper judicial process and in the interests of justice. It is highly unlikely that the legislature intended that s 27 should be construed in such a way as to obliterate the distinction between original and appellate jurisdiction.
72 The proper role of an appellate court under s 25 of the Federal Court Act has been considered on a number of occasions in recent years including in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd & Anor (2001) 117 FCR 424 and Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211 at [45]; it is ordinarily to correct error. Nothing in CDJ v VAJ was, in our view, intended to minimise the force of the observation of Gibbs CJ and Wilson, Brennan and Dawson JJ in Coulton v Holcombe (1986) 162 CLR 1 at 7 that:
It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.
73 It is necessary to consider the additional evidence sought to be adduced by Mr Sobey having regard to the above principles. It may be noticed at once that there is no suggestion that the admission of the additional evidence is necessary to protect the rights of third parties. Indeed, the purpose for which the evidence is sought to be adduced is to show that Mr Sobey, rather than the unsecured creditors of Mr Mercorella and the Scheme, is entitled to the surplus funds from the sale of the Jerningham Street property. That is, far from protecting the rights of third parties the admission of the additional evidence might adversely affect the rights of third parties as determined by the primary judge.
74 None of the additional evidence that Mr Sobey seeks to adduce is fresh evidence in the sense that it concerns events which happened, or documents brought into existence, since the date of the hearing before the primary judge. The explanation for the evidence not being adduced at first instance is, at best, unsatisfactory and it is disputed.
75 Moreover, certain of the evidence, including the evidence concerning the execution of critical documents and the conduct of various firms of solicitors who have acted for Mr Sobey, is highly contentious. In some regards it is incomplete. For example, neither Mr nor Mrs Sobey has sworn an affidavit explaining the date on which, and the circumstances in which, Mrs Sobey witnessed Mr Sobey’s signature on the memorandum of mortgage (see [54] above).
76 The additional evidence identified by Mr Hoffmann makes plain that, if the additional evidence that Mr Sobey seeks to adduce were received, fairness would demand that Messrs Nicol and Davies be allowed to adduce answering evidence. A number of the deponents to the affidavits containing the additional evidence could be expected to be required for cross-examination. That is, the only practical outcome would be for the matter to be remitted to a judge – effectively for re-hearing. As Lander J observed in Williams v Grant at [47], this would in reality give Mr Sobey that which he seeks on appeal without the merits of his appeal being considered. While in some cases the proper operation of s 27 may render this outcome unavoidable, having regard to the other considerations identified in [73]-[75], [77] and [79], we do not consider this to be a case of that character.
77 Perhaps most critically, even if the additional evidence which Mr Sobey seeks to adduce were received and accepted at face value, it is far from clear that Mr Sobey would show an entitlement to the surplus funds from the sale of the Jerningham Street property. The more significant of the difficulties that stand in the way of Mr Sobey showing that the judgment under appeal is erroneous include that:
(a) the consideration expressed in the memorandum of mortgage, which does not operate as a deed, is past consideration (see [16] above);
(b) the evidence does not support a suggestion that the consideration for the mortgage was in truth forbearance to sue or that the parties reached an agreement to discharge a previous agreement or agreements in consideration of each of them entering into a fresh agreement; and
(c) the reconciliation of Mr Mercorella’s accounts and those of his related entities (see [65] above) show that since 20 April 2004 Mr Sobey and his related entities have received nearly eight million dollars from Mr Mercorella but no explanation of the relevance, if any, of those payments to Mr Sobey’s asserted entitlement has been proffered by Mr Sobey.
78 This final matter assumes particular significance because of Mr Sobey’s failure to provide to Messrs Nicol and Davies, or to the Court, a reconciliation of the amounts allegedly due pursuant to the loan agreement.
79 A further relevant factor is that, Lander J having refused to stay the order of the primary judge, the surplus funds available from the sale of the Jerningham Street property have now been paid to Messrs Nicol and Davies. For this reason there is a question as to the utility of the appeal from his Honour’s judgment. Counsel for Mr Sobey indicated that were the matter remitted for re-hearing, Mr Sobey would seek a declaration as to his entitlement to the surplus funds. It seems that it is envisaged that Mr Sobey would thereafter be able to rely on the declaration in a proceeding to be brought against Messrs Nicol and Davies. We express no view on whether such a proceeding could successfully be brought against Messrs Nicol and Davies in the circumstances outlined above. However, there is a public interest in the finality of litigation. Mr Sobey’s acceptance that the right which he seeks to establish cannot now be vindicated without the institution of yet another proceeding, or perhaps the making of a fresh application in the proceeding at first instance, is a factor which weighs against the exercise of the Court’s discretion to receive additional evidence. We are not required to express a view on whether the position might be different had Mr Sobey offered to pay the costs of Messrs Nicol and Davies of the hearing before the primary judge and on appeal.
80 For the above reasons the application by Mr Sobey for this Court to receive evidence additional to the evidence before the primary judge is refused.
APPLICATION FOR LEAVE TO APPEAL
81 Mr Sobey did not concede that, if his additional evidence were not received, he could not establish that the primary judge erred in not allowing the application for an order adjourning the hearing at first instance. However, no submissions were advanced in support of a contention that, on the evidence before him, his Honour erred in refusing the adjournment application.
82 In our view, having regard to the evidence before him, it is plain that no error affected the exercise of his Honour’s discretion to refuse the adjournment application. No satisfactory explanation was offered to his Honour for Mr Sobey’s inability to proceed on that day. The application for leave to appeal from his Honour’s judgment in this regard is therefore refused.
APPEAL
83 It was not contended by Mr Sobey that, on the evidence before him, his Honour erred in ordering the surplus funds available from the proceeds of sale of the Jerningham Street property be paid to Messrs Nicol and Davies as the relevant parties entitled to receive such moneys. The appeal is therefore dismissed.
COSTS
84 No reason was identified why an order for costs should not follow the event.
ORDERS
85 It will be ordered as follows:
1. The application by the appellant to adduce additional evidence be refused.
2. The application for leave to appeal from the interlocutory judgment pronounced on 24 November 2006 refusing to adjourn the hearing listed for that day be dismissed.
3. The appeal be dismissed.
4. The appellant pay the respondent’s costs of the application to adduce additional evidence, the application for leave to appeal and the appeal including all reserved costs.
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I certify that the preceding eighty-five (85) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Branson, Lindgren and Besanko. |
Associate:
Dated: 22 August 2007
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Counsel for the Appellant: |
Mr N Morcombe QC and Mr S D Ower |
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Solicitor for the Appellant: |
Michael Brereton & Co |
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Counsel for the Respondent: |
Mr M Hoffmann QC with Ms T Flaherty |
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Solicitor for the Respondent: |
Minter Ellison |
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Date of Hearing: |
6 July 2007 |
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Date of Judgment: |
22 August 2007 |
